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Are Donald Yacktman's New Buys Undervalued?

June 12, 2013 | About:
Holly LaFon

Holly LaFon

276 followers
Yacktman Asset Management’s Donald Yacktman looks for good, low-priced businesses that he holds for the long term. Using this strategy, he has earned prodigious returns for investors on the firm’s $22 billion in assets under management.

When analyzing stocks, Yacktman’s team is primarily concerned with price. Below are three valuations of Yacktman’s new buys based on Peter Lynch charts, reverse DCF and P/E. It appears that he bought two of the stocks at low prices in view of most of the measures.

Dell Inc. (DELL)

Yacktman invested in 14,912,159 shares of Dell Inc. in the fourth quarter 2012 and first quarter 2013, at average prices of $10 and $13, respectively. Dell shares have since advanced 16%, to $13.37 per share.

The Peter Lynch chart indicates that Dell is quite undervalued:

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The reverse DCF calculator also reports that investors expect Dell to grow at a rate of 3.76% over the next 10 years, to justify the current share price. While Dell’s revenue per share over the last 10 years surpassed this rate, growing at 7.7% annually, earnings per share fell short, at 2.5% annually.

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Dell also has a P/E ratio of 12.5, which is lower than 90% of companies in the global computer systems industry.

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Though Dell appears undervalued according to some metrics, it is a special case, as it is involved in a tussle between its founder and CEO Michael Dell, who wants to take the company private, and prominent shareholders such as Carl Icahn and Mason Hawkins, who have made their own bid on the company. Icahn and Hawkins believe that the $13.65 per share, or $24 billion in total, offer from Michael Dell and a private equity firm undervalues the company.

Yacktman commented on the holding in a March interview with Bloomberg, saying that he expects Dell will look much different in a year and that the PC business is a “melting ice cube.”

He also said of the price: “We bought it late last year when it was under $10, at that price we felt like – my son Steve refers to us sometimes as dumpster divers. It was just dirt cheap. We just felt that even though the future was rather hazy and foggy, that at that price, it was worth more than that.”

Sigma Aldrich (SIAL)

Yacktman purchased more than 22 million shares of this new stock for three of his funds, paying $77 per share on average, in the first quarter. The price has since increased 5% to $81.15.

Sigma Aldrich, is a life science and high technology company dealing in chemicals and biochemicals, with a $9.87 billion market cap.

In the last 10 years, the company’s stock has risen 197%, And the Peter Lynch chart suggests that it has been overvalued – except briefly in 2009 – since 2001.

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The reverse DCF calculator also indicates that SIAL is overvalued. It says that the market expects a 15.61% EPS growth rate to justify the current share price. That means it would have to grow faster in the next 10 years than it did in the past 10 years, when EPS increased at a rate of 11.8% annually.

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SIAL’s P/E at 21.4 is not significantly higher or lower than its range of the previous decade:

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In addition, the stock trades at close to its 10-year high share price, with a P/S ratio near the high end of its 10-year high, at 3.8.

While the company does not appear significantly undervalued by the above measures, it has a 12.25% forward rate of return, a criterion that Yacktman always looks closely at.

CH Robinson Worldwide Inc. (CHRW)

The stock holding Yacktman increased the greatest amount in the first quarter was CH Robinson Worldwide Inc. (CHRW). His firm grew the position by 451%, buying more than 7 million shares, for a total of 7,819,550. They paid $61 on average for most of the shares, and the price has since dropped to $56.02.

CH Robinson is a third-party logistics company with a $9.04 billion market cap.

The Peter Lynch chart shows that CHRW recently has become quite a bit less overvalued than it has for the duration of its trading history:

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The reverse DCF calculator shows that the market is expecting EPS at CHRW to grow at a rate of 10.57% in the next 10 years. The projection appears reasonable at least in light of its previous 10-year record, when it grew by 18.7% annually.

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With a P/E of 15.1, CHRW has the highest P/E of all the companies in the global integrated shipping & logistics industry. It is the lowest level in 10 years of CHRW’s history, however:

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Likewise, its P/B of 6.07 and P/S of 0.80 are both near their 10-year low.

See more of Yacktman’s stock trades here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Donald Yacktman.


Rating: 3.0/5 (8 votes)

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